Introduction: 2014 continued to be an active year on the State and Local tax front as governments wrangled with issues designed to keep the state coffers flowing with tax revenues. State taxes encompass a wide variety of tax types and taxpayers. Income taxes (personal and corporate), franchise taxes, sales/use tax and property taxes cast such a wide net that nearly every taxpayer in every state will be impacted by one or more of these taxes. We continue to see heavy audit activity by the states as they continue to look at tax return filings for any additional revenue that they can collect.

Business taxpayers should be aware that states are continuing to revise and expand their definitions of the types of in-state activities that are deemed to create nexus and a filing obligation for an out-of-state business. Economic nexus statutes continue to be enacted – these “bright line” tests will obligate businesses to file state taxes in more state jurisdictions.

Apportionment factors are the methods used by states to divide up a business’ income among the states. States have been shifting their apportionment methodology from the standard equal weighted three factor formula to either a single sales factor or a heavily weighted sales factor. This shift in apportionment methodology should have every business taking a look at how it will impact their state tax burden.

Adding to the changes in apportionment methodology is the adoption by many states of what are commonly referred to as market-based sourcing rules. These rules will impact any businesses which provide services or collect income from intangibles such as licenses or royalties. The adoption of market- based sourcing replaces the traditional cost-of-performance method for allocating service revenue to the state where the preponderance of work was completed. Under market-based sourcing rules, the revenue from providing services will be sourced to the location of the customer or where the customer is deemed to have received the benefit of the services. States that have adopted this methodology have each issued regulations designed to help taxpayers apply these rules.

On the sales/use tax front, much attention in 2014 has been given to the sales tax treatment of cloud computing and internet sales. States have defined the provision of cloud computing services as both taxable and nontaxable services depending on each states’ statutes. Internet vendors have been paying close attention to the Marketplace Fairness Act which is still stalled in Congress, but if passed, would impose a sales tax filing obligation on most businesses that make sales of products over the internet. (The current bill has a small business carve-out for businesses with less than $1 million of internet sales). Stay tuned for further updates on this bill.

In summary, there continues to be an incredibly large amount of activity on the state and local tax front. Many businesses may be unprepared if a state tax audit arises without having taken a closer look at the impact of all of these new provisions.

Following are some 2014 highlights and developments for several specific states:

On March 31, 2014, New York State enacted a budget bill implementing sweeping tax reform. These provisions are grouped below by effective date:

Family Tax Relief Credit. A credit of $350 per tax return, available for tax years 2014, 2015, and 2016 for New York residents who filed New York tax returns for the tax year that was two years prior to the credit year. Taxpayers must have a dependent child under age 17 on the last day of the tax year, have NY adjusted gross income between $40,000 and $300,000, and have a tax liability greater than zero.

Hire a Veteran Credit. For taxpayers who hire qualified veterans between January 1, 2014, and January 1, 2016, and employ the veterans at least 35 hours per week for at least one year. The credit may be claimed on 2015 and 2016 returns.

Historic Homeownership Rehabilitation Credit. An enhanced credit of up to $50,000 ($100,000 for joint return) is extended through 2019. The credit is refundable for taxpayers with NY adjusted gross income of $60,000 or less.

Minimum Wage Reimbursement Credit. Available for tax years 2014 through 2018.

New York Youth Works Tax Credit. Available for tax years 2014 through 2017. The program was enhanced in 2014 with increased credit amounts and lowered the part-time work hours requirement for high school students.

New York City Tax Provisions:

Note: New York City has not yet adopted legislation to conform to the new New York State corporate tax provisions discussed above.

General Corporation Tax. Tax rates are extended through 2017.

Personal Income Tax. Tax rates are extended through 2017. Implementation of lower tax rates is delayed until 2018. Expiration of the additional tax surcharge is delayed until 2018. The add-on minimum tax is eliminated as of 2014.

Personal Income Tax Credit. Circuit Breaker Tax Credit provides a refundable credit of up to $150 on personal income tax for eligible NYC owners and renters earning less than $200,000. This credit is available for 2014 and 2015.

NYC Sales and Use Tax. NYC sales tax is extended through November 30, 2017, on the following services: credit rating and credit reporting services; beauty, barbering, personal grooming and massage services; services of weight control or health salons, gymnasiums, Turkish baths and saunas. Exemption from NYC sales and use taxes is extended for leases in certain commercial properties in lower Manhattan.

This past summer, California Governor Jerry Brown signed bills into law which brought continued changes to the California tax landscape supplementing his 2013 Economic Development Initiative, despite the loss of the much coveted new Tesla facility. To offset California’s highest marginal tax bracket of 13.3% on individuals with over $1 million of taxable income, credits are included as provisions of the new law:

College Access Tax Credit: This credit provides a generous state income tax credit for individuals or companies that make a charitable donation to either the California State University or University of California systems. Credits of $500 million per year for 2014, 2015, and 2016 will be awarded, and the contribution must be applied for, and certified by, the California Educational Facilities Authority. The credit is 60% of the amount contributed for 2014, 55% in 2015 and 50% in 2016. Although no deduction for the donation will be allowed on the California income tax return, it will be allowed in full on the federal income tax return. The tax deduction will especially benefit those subject to alternative minimum tax (AMT), as less state tax is being paid, decreasing the income subject to the AMT.

California Film & Television Job Retention and Promotion Act: This legislation creates a new five-year film and TV credit program beginning in fiscal year 2015/16 with expanded eligibility to include big-budget feature films, 1-hour TV series and TV pilots. Funding for the new program is $230 million in fiscal year 2015-16, and $330 million per fiscal year from 2016-17 through 2019-20.

California Competes Tax Credit: This credit is available to businesses that want to come or stay and grow in California. For fiscal years 2014-2015, GO-BIZ will accept applications during the following periods: September 29, 2014, through October 27, 2014 ($45 million available); January 5, 2015, through February 2, ,2015 ($75 million available); March 9, 2015, through April 6, 2015 ($31.1 million available). The California Competes Credit is available for each taxable year beginning on or after January 1, 2014, and before January 1, 2015.

New Employment Credit: This credit is available for each taxable year beginning on or after January 1, 2014, and before January 1, 2021, to a qualified taxpayer that hires a qualified full-time employee on or after January 1, 2014, and pays or incurs qualified wages attributable to work performed by the qualified full-time employee in a designated census tract or economic area.

Manufacturing and Research & Development Equipment Exemption: Beginning July 1, 2014, manufacturers and certain research and developers may qualify for a partial exemption of sales and use tax on certain manufacturing and research and development purchases and leases. To be eligible for this partial exemption, you must be engaged in certain types of business, purchase “qualified property” and use that qualified property for the uses allowed by this law.

California Like-Kind Exchanges: For exchanges of property that occur in taxable years on or after January 1, 2014, taxpayers who defer gain or loss under Internal Revenue Code Section 1031 by selling California property and acquiring out-of-state like-kind property must file an annual information return reporting the exchange to California.

Net Operating Loss (NOL) Carryback: NOL’s incurred in taxable years beginning on or after January 1, 2013, shall be carried back to each of the preceding two taxable years. For an NOL incurred during 2013, the carryback will be 50% of the NOL; for 2014, 75% and 2015, 100%. Similar to federal law, an election to relinquish the NOL carryback may be made.

Single-Sales Factor Formula: For taxable years on or after January 1, 2013, all businesses must apportion their business income to California using the singlesales factor formula and to assign sales, other than sales of tangible personal property, using market assignment.

Elimination of Tax Clearance Certificate: Effective on or after January 1, 2014, California no longer requires any estate to obtain a Tax Clearance Certificate.

Minimum Wage: On or after July 1, 2014, the minimum wage for all industries shall not be less than nine dollars ($9) per hour.

Water’s Edge Filers: In general, Water’s Edge rules provide for an election out of worldwide combined reporting. By electing Water’s Edge, a California taxpayer elects into a complex blend of state and federal concepts.

Sale of Unused Tax Credits:

On September 19, 2014, the PA Department of Revenue issued Corporate Tax Bulletin 2014-04, addressing revised procedures for the application and sale of “restricted” (nonrefundable) tax credits. The tax credit programs to which this Bulletin applies are as follows: the Research and Development Tax Credit (R&D), the Film Production Tax Credit (Film), the Neighborhood Assistance Program Tax Credit (NAP), the Resource Enhancement and Protection Tax Credit (REAP), the Keystone Innovation Zone Tax Credit (KIZ), the Keystone Special Development Zone Tax Credit (KSDZ), and the Historic Preservation Incentive (HPI) Tax Credit. Taxpayers with an excess of unused PA tax credits in these programs can apply to the PA Department of Community and Economic Development to sell them to another PA taxpayer.

Partnership Gain on Foreclosure:

In June of 2014, the PA Supreme Court upheld a decision assessing $2.6 billion in income to a partnership on a mortgage foreclosure, which in turn was allocated and taxed to five PA nonresident partners in accordance with their interests in the partnership. Most of the income was due to previously accrued and expensed but unpaid interest charges.

The partners were not allowed to offset the gain on the foreclosure with their investment losses on disposition of their partnership interests. Unlike many states, the PA personal income tax law does not have an all-inclusive definition of “income.” It taxes only income that falls within eight specifically enumerated classes of income. Further it prohibits the loss in any one class of income from offsetting gains in any of the other classes of income. In upholding the lower court rulings in this case, the PA Supreme Court noted that the income from the foreclosure is in a separate class of income (business operations) than the loss on the investment in the partnership interest (gain or loss on disposition of property).

The taxpayers also attempted to assert the tax benefit rule. The tax benefit rule, while a federal concept, has been incorporated into PA law through case law and by reference in the PA Department of Revenue’s annual Personal Income Tax Guide. The rule permits exclusion of a recovered item from income to the extent that its initial use as a deduction did not provide a tax saving. A substantial portion of the deductions attributable to the accrued but unpaid expenses that generated the foreclosure income never provided any tax benefit to the nonresident partners, and so the taxpayer should have been provided some relief under the tax benefit rule. The court denied the application of the tax benefit rule, however, due to the fact that the nonresident partners had not filed Pennsylvania tax returns for the loss years.

PA nonresidents with losses from PA-sourced activities should consider filing PA individual tax returns even in overall loss years, even though PA does not permit loss carryforwards, in order to help establish later eligibility for the tax benefit rule to exclude recovery of those losses in a later year.

Rental Income is Not Subject to PA Local BPT Taxes:

The PA Local Tax Enabling Act (LTEA) authorizes the imposition of business privilege tax, but specifically prohibits the assessment or collection of “any tax on... leases or lease transactions.” Under the LTEA, each PA municipality is permitted to enact its own business privilege tax but must follow the parameters set by the LTEA. In October of 2014, the PA Supreme Court held that the trial court erred in upholding the imposition of local business privilege tax (BPT) on lessors of real property. The township argued that the exclusion only applies to a direct tax on each lease transaction, wherein the township BPT applies to the gross receipts from the business of leasing property; however, the Supreme Court held that a 1.5 mill BPT tax on gross receipts from the lease or rental of real property still violates the limitation on the Township’s taxing authority when applied to a lessor’s lease revenue. The court noted that there is no material difference between a tax scheme that imposes a 1.5 mill tax upon the receipt of each rent payment (arguably a transactional tax), and a scheme that imposes a 1.5 mill tax payment annually based on all rent receipts. Early indications are that the townships will collectively appeal the decision to the PA Supreme Court.

PA Act 52 of 2013, Provisions Taking Effect in 2014:

In the summer of 2013, Pennsylvania Governor Tom Corbett signed into law a bill which brought sweeping changes to the Pennsylvania tax landscape. Many of the provisions of the 2013 bill took effect for the first time for the 2014 tax year.

Provisions of the 2013 Bill include:

Extension of Phase-out for Capital Stock/Franchise Tax: This tax, scheduled to be eliminated for taxable years ending December 31, 2013, will now be phased out for tax years beginning after December 31, 2015, representing a two-year extension of the tax. The tax rate will be reduced to 0.67 mills in 2014 and 0.45 mills in 2015.

Related Party Expense Addback: Effective for taxable years beginning after December 31, 2014, for Pennsylvania Corporate Net Income tax purposes, taxpayers generally may not deduct intangible or interest expenses and costs paid or accrued to an affiliated entity. Pennsylvania now joins a long list of states which have enacted similar disallowances. A tax credit is available if the affiliated entity is subject to tax on the corresponding intangible or interest item in any U.S. state or possession. Various exceptions are provided to the addback requirement if certain conditions are met, such as business purpose and arm’s length criteria; transactions with affiliates located in a foreign nation that has a comprehensive tax treaty with the United States; and some instances where the affiliate incurs a similar payment to an unrelated party.

Market-Based Sourcing for Service Revenue: For tax years beginning after on or after January 1, 2014, the receipt from the sale of a service will to be sourced to Pennsylvania for apportionment purposes if the service is delivered to a location in the state, or based on the relative value of the services delivered to Pennsylvania. Market-based sourcing represents a significant change in methodology for service providers and has been adopted by a growing number of states.

Increased Net Operating Loss Deductions: The current net loss deduction limitation for Corporate Net Income Tax (the greater of $3,000,000 or 20% of Pennsylvania taxable income) is increased to the greater of $4,000,000 or 25% of Pennsylvania taxable income for tax years beginning after December 31, 2013, and to the greater of $5,000,000 or 30% of Pennsylvania taxable income for tax years beginning after December 31, 2014.

Foreign Tax Credit for Individuals: For tax years beginning in 2014, individuals will no longer be permitted to claim a credit for taxes paid to foreign countries. The credit for taxes paid to other states will remain in place.

Changes to the Research and Development Credit:

Effective for tax years beginning on or after January 1, 2015, a business corporation may elect to calculate its research credit using one of two methods.

The first method revises the existing research credit by changing two definitions that affect the calculation of the credit, i.e., the definitions of “base amount” [1] and “fixed base rate”[2]. The amount of the credit is equal to the sum of 10% of the excess, if any, of the qualified research expenses for the taxable year over the base amount plus 15% of the basic research expenses determined under I.R.C. § 41(e)(1)(A).

The second method, which a taxpayer may elect to use in lieu of the method described above, provides for an alternative simplified research credit, which generally conforms to the methodology of the federal alternative simplified credit provided by I.R.C. § 41(c)(5), as amended and in effect for January 1, 2014.

The Massachusetts alternative simplified credit, the second method, will be phased in over a seven-year period as follows:

For Calendar Years 2015, 2016, and 2017, the amount of the credit is equal to 5% of the taxpayer’s qualified research expenses for the taxable year that exceed 50% of the taxpayer’s average qualified research expenses for the three taxable years preceding the taxable year for which the credit is being determined.
For Calendar Years 2018, 2019 and 2020, the amount of the credit is 7½% of the taxpayer’s average qualified research expenses for the three taxable years preceding the taxable year for which the credit is being determined.
For Calendar Years Beginning On or After January 1, 2021, the amount of the credit is increased to 10%. If the corporation did not have qualified research expenses in any one of the three taxable years preceding the taxable year for which the credit is being determined, the amount of the Massachusetts alternative simplified research credit is equal to 5% of the taxpayer’s qualified research expense for the taxable year.

The “base amount” is now defined as “[t]he product of (i) the average annual gross receipts of the taxpayer for the four taxable years preceding the credit year”; and (ii) a ‘fixed base ratio’.”

The “fixed-base ratio” is no longer tied to a corporation’s aggregate Massachusetts qualified research expenditures for a fixed five- year period during the 1980s. It is now defined as “the percentage which the average aggregate qualified research expenses for the taxpayer for the third and fourth taxable years preceding the credit year is of the annual average gross receipts for those years, provided, however, that the fixed base ratio shall not exceed 16 percent.”

Change in Transferability of Historic Credit for Certain Personal Income Tax Taxpayers:

A change in the personal income tax statutes in MA provides that a taxpayer who acquires a qualified historic structure is allowed to receive any tax credits for qualified rehabilitation expenditures previously awarded to the transferor of the qualified historic structure if: (A) the rehabilitation was not placed in service by the transferor; (B) no credit has been claimed by anyone other than the acquiring taxpayer as verified by the Department of Revenue to the Historical Commission; (C) the taxpayer completes the rehabilitation and obtains certification from the Historical Commission; and, (D) the taxpayer complies with all other requirements under the Historic Rehabilitation Tax Credit statute and related regulations and rules. In the case of a multi-phase project, tax credits may be transferred for any phase that meets the criteria in subsections A) through (D). This change is effective August 13, 2014.

Change to the Allocation of Sales from Services to the Sale Factor of the Corporate Apportionment Percentage:

Effective for tax years beginning on or after January 1, 2014, Massachusetts will change its allocation of sales, other than those from tangible property, from a cost-of-performance allocation to a market-based sourcing allocation as follows:

Sales, other than sales of tangible personal property, are attributed to Massachusetts if the corporation’s market for the sales is in Massachusetts. The sale of a service is in Massachusetts if and to the extent that the service is delivered at a location in Massachusetts.

Where the service provided by the taxpayer is an in-person service, the delivery of the service is at the location where the service is received.

When a service is delivered to the customer, or delivered through or on behalf of the customer, the sale is in Massachusetts if and to the extent the service is delivered in Massachusetts via physical means or electronic means.

The regulation provides for a reasonable approximation determination if the taxpayer cannot determine the specific location of the customer in accordance with the rules presented. Once a reasonable method has been determined and applied to a taxpayer, that method must continue to be used for all future years. A taxpayer can correct factual or calculation errors in its method only. Changes to the overall method cannot be made with the filing of an amended return or other manner.

If the taxpayer seeks to change the method on an original return filed in a subsequent year, the change must be fully disclosed in the original return, as well as the change in the method and the reason for the change.

The Commissioner maintains the right to question any method employed and apply his/her own method if the Commissioner deems that method more reasonable.

In the event that the taxpayer is not taxable in a state where a sale is sourced, or the taxpayer cannot determine any state for which a sale is to be assigned, then those sales are to be excluded from the numerator and denominator of the sales factor. Many industries are addressed directly in the regulation along with numerous examples.

Changes Affecting Nonresidents:

Apportionment of Nonresidents’ Business Income in Pass-Through entities: Currently, Connecticut is the only state to have different apportionment rules for C-Corps and Pass-Through Entities. In an attempt to make the rules similar, effective for tax years beginning on or after January 1, 2014, the calculation of the apportionment factor has changed for nonresident partners of pass-through entities having receipts both inside and outside of Connecticut. More specifically, legislation has changed the apportionment rules for sales of tangible personal property by sourcing to Connecticut sales of property that are delivered or shipped to a purchaser (a.k.a. Destination Sales) in Connecticut regardless of the F.O.B. point for nonresident partners. The old rule for calculating apportionment for nonresident partners omits the “destination” sales component, and “origin” sales were required to be included in the sales factor calculation.

Gross receipts from services are still considered to be earned within the state when the services are performed by an employee, agent, agency, or independent contractor connected with a business situated within Connecticut (a.k.a. origin sales).

Nonresident Income from Connecticut Property: Effective January 1, 2014, a nonresident must now include in his/her Connecticut taxable income calculation of the gain or loss from the disposition of an interest in a pass-through entity that owns real property in the State of Connecticut. This inclusion occurs if the real property has a fair market value that equals or exceeds 50% of all the assets of the entity on the date of disposition of such interest by the nonresident.

There are also minor changes to Nonresident Nonqualified Deferred Compensation, the Connecticut Fiduciary Adjustment, Teacher Retirement System Income and Refund CHET Contributions (taxpayers can now contribute all or part of their state income tax refund into an individual savings plan under the CHET program).

Sales and Use Tax Changes:

Acceleration of Due Date: Effective October 1, 2014, the due date for remitting monthly sales and use tax returns and payments is moved up to the 20th day of each month (formerly the last day of the month). Further, the Commissioner of Revenue Services now has the authority to require delinquent taxpayers to remit sales and use tax collected on a weekly basis.

Nonprescription Drugs and Medicines: Effective for sales occurring on or after April 1, 2015, legislation reinstates a sales and use tax exemption for sales of certain nonprescription drugs and medicines for use in or on the body, including: vitamins or mineral concentrates; dietary supplements; natural or herbal drugs or medicines; products intended to be taken for coughs, cold, asthma or allergies, or antihistamines; and laxatives among other items. The exemption expressly does not include cosmetics, dentifrices, mouthwash, shaving and hair care products, soaps and deodorants.

Clothing and Footwear Exemption: The exemption for the sale of any article of clothing or footwear intended to be worn about the human body and costing less than $50, originally passed during the 2013 legislative session but delayed, was reinstated during the 2014 session. The effective date for this exemption is now July 1, 2015.

Effective for tax years beginning on or after January 1, 2013, the Florida corporate income tax exemption was increased from $25,000 to $50,000. For the 2014 tax year, the exemption will remain at $50,000. This will eliminate the tax on corporations with $50,000 or less in Florida income. However, this does not change a corporate taxpayer’s return filing requirement.

In 2013, corporate taxpayers claiming a section 179 deduction were required to add back to adjusted federal income any amounts which exceed $128,000, including amounts carried over from previous years. Florida also required taxpayers to add back to adjusted federal income the 50% bonus depreciation for assets placed in service during the 2013 tax year. However, for property placed in service after December 31, 2013, uncertainty exists as it relates to the depreciation adjustment for Florida corporate income tax purposes.

At this point it is unknown if Congress will extend bonus depreciation for 2014 and beyond. In prior years, bonus depreciation has been extended late in the year, or even after the start of a new year, as part of a larger package of tax extenders. If bonus depreciation is extended, the Florida adjustments for bonus depreciation deductions will morethanlikely be extended. If such is the case, the add-back requirements will continue to be applicable through December 31, 2014. If not, then Florida will most likely follow the federal depreciation rules, with the exception of the Section 179 adjustment.

Effective April 30, 2014, an exemption from sales and use tax is available for purchases of industrial machinery and equipment used at a fixed location in Florida by an eligible manufacturing business that will manufacture, process, compound, or produce for sale items of tangible personal property. The exemption also includes parts and accessories for the industrial machinery and equipment if they are purchased before the date the machinery and equipment are placed in service.

An “eligible manufacturing business” means any business whose primary business activity at the location where the industrial machinery and equipment are located is within the industries classified under manufacturing NAICS (North American Industry Classification System) codes 31, 32, and 33 published in 2007 by the Office of Management and Budget, Executive Office of the President. The primary business activity of an eligible business is that activity which represents more than 50 percent of the activities conducted at the location where the industrial machinery and equipment are located.

Effective July 1, 2014, there will be a decrease in the tax rate on electricity. For bills dated on or after July 1, 2014, the state tax rate on charges for electricity is reduced from 7% to 6.95%. A seller of electric power may collect a combined rate of 6.95% or may separately state each tax on their customers’ billings. Dealers that elect to use the combined rate are not required to label the rate in a particular way, provided the tax is clearly identified as a Florida state tax or sales tax. The combined 6.95% tax rate and any applicable local discretionary sales surtax continues to be reported on the Sales and Use Tax Return (Form DR-15).

Estate Tax

Legislative changes included in the FY 2015 budget for the State of Rhode Island, enacted on June 19, 2014, include increased thresholds for Rhode Island estate tax. The 2014 threshold for Rhode Island Estate Tax is $921,645, for decedents dying in 2014. This will be increased to $1.5 million for decedents dying on or after January 1, 2015. In addition, the current “cliff” provision, whereby once the threshold is exceeded, tax is computed on the entire estate, will be changed. Only the portion exceeding the $1.5 million will be subject to tax under the new law.

Corporate Income Tax:

Income Tax Rate Reduction
For tax years beginning on or after January 1, 2014 the Rhode Island corporate tax rate will remain at 9%. However, for tax years beginning on or after January 1, 2015, this rate will be reduced by 2 percent down to 7%.

Repeal of Franchise Tax
Effective for tax years beginning on or after January 1, 2014, the current franchise tax will be repealed. This tax is equal to $2.50 per $10,000 of authorized capital stock.

Combined Reporting
Rhode Island will be adopting combined reporting for corporate income taxes, effective for tax years beginning on or after January 1, 2015, whereby C Corporations which are part of a combined group engaged in a single activity will need to file a combined report for RI. This generally does not apply to S Corporations, partnership, disregarded entities, banks, credit
unions, insurance companies and public service corporations.

Apportionment
Currently, RI uses the three-factor apportionment formula (sales, payroll and property). Effective for years beginning on or after January 1, 2015, this will be replaced with the single factor apportionment of sales, for C Corporations. Entities other than C Corporations will continue to use the three-factor apportionment.

Market-Based Sourcing
Effective for tax years beginning on or after January 1, 2015, C Corporations will be required to use market-based sourcing, replacing the current cost-of-performance sourcing. This approach focuses on the state where the recipient of the service receives the benefit, versus the cost-of-performance sourcing which focuses on the state where the incomeproducing activity was performed.

Production Deduction
For tax years beginning on or after January 1, 2014, the domestic production activity deduction (DPAD) under code section 199 will no longer be allowed for RI purposes. As a result, corporations taking the DPAD for federal purposes will need to add the deduction back when calculating taxable income for RI.